Sec. 1502. Determination of net earnings from self-employment
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Section 1402(a) is amended by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or loss (as defined in section 1366(a)(2)) from any trade or business carried on by an S corporation in which he is a shareholder before ; except that in the matter preceding paragraph (1). Section 1402(a) is amended by inserting and such pro rata share of S corporation nonseparately computed income or loss after such distributive share of partnership ordinary income or loss in the matter preceding paragraph (1).
Section 211(a) of the Social Security Act is amended in the matter preceding paragraph (1)— by inserting , plus (notwithstanding subsection (c)(2)) his pro rata share of nonseparately computed income or loss (as defined in section 1366(a)(2) of the Internal Revenue Code of 1986)from any trade or business carried on by an S corporation in which he is a shareholder before ; except that , and by inserting and such pro rata share of S corporation nonseparately computed income or loss after such distributive share of partnership ordinary income or loss .
Section 1402(a) is amended by striking paragraph (13). Section 211(a) of the Social Security Act is amended by striking paragraph (12). Section 1402 is amended by adding at the end the following new subsection: An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of— 30 percent of the sum of— such individual’s pass-through net earnings from self-employment, and such individual’s wages (as defined in section 3121) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or such individual’s pass-through net earnings from self-employment.
For purposes of this subsection, the term pass-through net earnings from self-employment means net earnings from self-employment (as computed under subsection
(a)without regard to this subsection) determined without regard to any trade or business carried on by the individual. If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph
(1)such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of— the reduction determined under paragraph
(1)applied— by substituting 100 percent for 30 percent in subparagraph
(A)thereof, and by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus the reduction determined under paragraph
(1)applied— by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a non-participation entity, and by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a non-participation entity. For purposes of this paragraph— An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary that such individual— does not materially participate (as determined under section 469(h) without regard to paragraph
(2)thereof) in any activity carried on by such top-tier entity, and does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest. For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse. For purposes of this paragraph, the term non-participation entity means, with respect to any individual, any entity with respect to which such individual does not have material participation (as determined under subparagraph (B)). . Section 211 of the Social Security Act is amended by adding at the end the following new subsection: An individual’s net earnings from self-employment shall be reduced (but not below zero) by the lesser of— 30 percent of the sum of— such individual’s pass-through net earnings from self-employment, and such individual’s wages (as defined in section 209) paid with respect to any trade or business carried on by an S corporation in which he is a shareholder, or such individual’s pass-through net earnings from self-employment. For purposes of this subsection, the term pass-through net earnings from self-employment means net earnings from self-employment (as computed under subsection
(a)without regard to this subsection) determined without regard to any trade or business carried on by the individual. If an individual does not have material participation with respect to an entity (as determined under subparagraph (B)), in lieu of the reduction provided under paragraph
(1)such individual’s net earnings from self-employment shall be reduced (but not below zero) by the sum of— the reduction determined under paragraph
(1)applied— by substituting 100 percent for 30 percent in subparagraph
(A)thereof, and by determining pass-through net earnings from self-employment by only taking into account distributive and pro rata shares from non-participation entities, and by only taking into account under subparagraph (A)(ii) thereof wages paid with respect to trades or businesses carried on by S corporations which are non-participation entities, plus the reduction determined under paragraph
(1)applied— by determining pass-through net earnings from self-employment by not taking into account any distributive or pro rata share from a nonparticipation entity, and by not taking into account under subparagraph (A)(ii) thereof any wages paid with respect to trades or businesses carried on by an S corporation which is a nonparticipation entity. For purposes of this paragraph— An individual does not have material participation with respect to an entity (hereafter referred to as the top-tier entity) if such individual demonstrates to the satisfaction of the Secretary of the Treasury under section 1402(m) of the Internal Revenue Code of 1986 that such individual— does not materially participate (as determined under section 469(h) of the Internal Revenue Code of 1986 without regard to paragraph
(2)thereof) in any activity carried on by such top-tier entity, and does not materially participate (as so determined) in any activity carried on by any entity in which such top-tier entity holds (directly or indirectly) any interest. For purposes of applying clause (i), the participation of any individual in any activity shall also be treated as performed by such individual’s spouse and the lineal descendants of such individual and such individual’s spouse. For purposes of this paragraph, the term nonparticipation entity means, with respect to any individual, any entity with respect to which such individual does not have material participation (as determined under subparagraph (B)). . The amendments made by this section shall apply to taxable years beginning after December 31, 2014.